Hangar Haggling With Ballmer Girds Twitter’s CFO for IPO

By Douglas MacMillan -
Sep 3, 2013

Months after becoming Twitter Inc.’s
finance chief, Mike Gupta is talking to banks about handling the
company’s initial public offering, a sign that the most
anticipated stock-market debut since Facebook Inc. (FB) is getting
closer -- and that Gupta will play a key role in it.

The microblogging website has held preliminary talks with
securities firms about an offering, two people with direct
knowledge of the process said. Twitter is awaiting third-quarter
financial results before deciding whether to file the IPO
paperwork with regulators this year or next, said people who
asked not to be identified because the plans are confidential.

Gupta, who joined Twitter last year, would accompany Chief
Executive Officer Dick Costolo during an eventual cross-country
pre-IPO road-show, explaining the company’s business to
potential investors. The former Yahoo! Inc. (YHOO) finance executive
will draw on an ability to communicate intricate ideas simply as
he seeks to outline how the online-advertising business -- set
to reach $1 billion in sales next year -- can sustain long-term
growth, said Peter Fenton, a partner at Benchmark Capital.

“A lot of people are trying to understand, ‘How does this
thing work? How does it make money?,’” said Fenton, a Twitter
director whose venture capital firm is an early backer of the
company. “He has a layman’s ability to simplify and express it
in a way that’s not overly complicated.”

Technology Deals

An alumni of the University of Chicago Graduate School of
Business, Gupta, 42, has climbed the ranks of Silicon Valley
companies over the past decade, becoming a trusted lieutenant to
Yahoo co-founders David Filo and Jerry Yang. Gupta huddled with
the pair as they haggled in an airplane hangar with Microsoft
Corp. (MSFT) CEO Steve Ballmer in 2008 over the software maker’s
proposed $44.6 billion takeover. He later helped hammer out
Yahoo’s search pact with Microsoft and investment in Alibaba
Group Holding Ltd.

Gupta also helped take Zynga Inc. (ZNGA) public in 2011, leading
the negotiations for an 11th-hour $1 billion line of credit from
banks including Morgan Stanley and Goldman Sachs Group Inc.

“He was instrumental during our earnings calls and during
our roadshow” meetings to pitch investors, John Schappert,
Zynga’s former operating chief, said in an interview. “He would
do a great job of playing the other side and thinking through
all the intricacies.”

His deals haven’t all ended well. Yahoo shares plummeted in
the months after it rebuffed Microsoft’s offer and the
companies’ search pact fell short of sales projections in the
past year. Zynga’s market value has plunged 70 percent since the
company’s IPO as fewer users play its games on Facebook.

Rich Valuation

Yahoo’s holding in China’s Alibaba, by contrast, has proved
lucrative. It gives the Web portal a stake in the future of the
world’s biggest Internet market, and the sale of part of the
investment last year gave Yahoo CEO Marissa Mayer cash she could
return to shareholders and use for acquisitions.

Gupta will need to prove to investors and analysts that
Twitter deserves a rich valuation. The company was valued last
month at about $10.5 billion by GSV Capital Corp, one of its
investors, up 5 percent from a May estimate. Twitter will grow
advertising revenue to $950 million in 2014, an increase of 63
percent from $582.8 million this year, according to an EMarketer
Inc. estimate.

“The revenues are not really defined,” said Santosh Rao,
a senior analyst at Greencrest Capital Management LLC in New
York. “People want to know, when you start going on the
roadshow, where is the next incremental dollar coming from?”

Secret Meeting

To help gear up for an IPO, Gupta has been building a team
of finance pros. He hired Cynthia Gaylor, a former Morgan
Stanley managing director with 17 years in investment banking,
in May. Twitter recently posted an opening on LinkedIn Corp.’s
website seeking a financial-reporting manager whose duties will
include preparing financial statements “when we are ready to go
public.” USA Today earlier reported on the job listing.

Born and raised in New York City, Gupta got his start in
investment banking in the 1990s at Merrill Lynch. In 2003, he
joined Yahoo, where he held roles in finance and corporate
development, quickly earning the trust of top brass.

At a secret meeting in an Oregon airplane hangar in April
2008, Gupta was the only Yahoo executive alongside Yang and Filo
to discuss the Web portal’s possible sale to Microsoft. The trio
met in person with Microsoft CEO Ballmer and his deputy, Charlie
Songhurst, according to two people with knowledge of the matter.

Credit Line

Karen Wickre, a spokeswoman for San Francisco-based
Twitter, declined to make Gupta available for an interview or
comment on IPO plans. Peter Wootton, a spokesman for Redmond,
Washington-based Microsoft, declined to comment.

Although Yahoo rebuffed Microsoft’s bid, the negotiations
eventually led to a search partnership, which Gupta helped
clinch alongside former Yahoo CEO Carol Bartz. The finance
executive also accompanied Yang on trips to China to secure
Yahoo’s backing in Alibaba, an investment that has appreciated
as the Asian e-commerce giant nears its own IPO.

Soon after Gupta was poached by Zynga in June 2011, he set
about working with bankers to draft the gamemaker’s IPO
prospectus, according to David Wehner, the former Zynga CFO who
now works at Facebook.

Zynga also took advantage of bankers’ eagerness to earn
fees from the deal by securing a $1 billion line of credit from
its IPO underwriters, including Morgan Stanley and Goldman Sachs
while negotiating with them on terms, an initiative led by Gupta,
according to Wehner.

“It’s a good time to do it,” Wehner said in an interview.
“There are a lot of fees being paid out, so banks are more
favorable.”

Executive Team

The borrowing power instilled confidence in IPO investors
and gave Zynga the ability to buy gaming upstarts.

The tactic of securing credit on the eve of an IPO,
relatively unusual before Zynga went public, was later copied by
Facebook. Gupta may also repeat it in his new role, said Guru Gowrappan, a technology veteran who worked with him at Yahoo and
Zynga.

“I wouldn’t be surprised if he does the same thing for
Twitter,” Gowrappan said in an interview.

Twitter made its play for Gupta after an executive shuffle
over the past few years. Costolo, who became CEO in 2010,
promoted Ali Rowghani, who joined Twitter as CFO, to COO last
year. Vijaya Gadde, a former lawyer for Wilson Sonsini Goodrich
& Rosati, was promoted to general counsel on Aug. 30 to replace
Alexander Macgillivray.

Gupta’s low-key manner complement the duo in charge at
Twitter, said Fenton, who, along with fellow director Peter Currie recommended the finance executive to Costolo.

Facebook Lessons

“There is a consistent style in that leadership team of
humility as opposed to being arrogant or braggadocios,” Fenton
said.

Gupta will also need to heed the lessons of Facebook, which
lost more than half its value in the six months after its May
2012 IPO on concerns it wasn’t making enough sales from ads on
mobile devices. There’s a good chance Twitter will avoid that
fate because most of its sales are projected to come from
smartphones and tablets in 2014, which investors interpret as a
promising sign, said Clark Fredricksen, vice president at
EMarketer.

“The company is well prepared for the mobile future,” he
said.

Twitter’s informal talks with potential IPO bankers were
previously reported by the New York Post.

Gupta’s experience earlier in his career as an auditor at
KPMG will also help Twitter in its preparations to go public,
according to Vlado Herman, Yelp Inc. (YELP)’s former CFO, who helped
the reviews site go public last year. There, he developed skills
both in auditing as well as finance, Herman said.

“A lot of times when you hire a CFO they are either a
controller track, or the audit track,” Herman, who is now CFO
at software-tools provider GitHub Inc., said in an interview.
“Mike has both, which is really cool. As you’re thinking
through the IPO, accounting becomes a really big aspect of going
public. Having that is pretty potent.”